VA Loan PlusVA Loan Gift Funds
Can my girlfriend/boyfriend give me money to buy a house?
For those looking to buy a home with the help of a VA
loan, you may be wondering about the requirements for
gift funds. Can someone just give you the money outright
to help with the down payment and closing costs? In this
article, we'll clear up any confusion so that you can be
on your way to homeownership!
What are VA Loan Gift Funds?
If you're an eligible Veteran using a VA home loan to purchase a home, you may be able to receive gift funds from a family member or friend to help with your closing costs and prepaid expenses. Here's what you need to know about VA loan gift funds requirements.
Your donor can not be a real estate agent or broker who is selling you the home. And the gift can not come with any strings attached – like the requirement that you buy a certain type of insurance from the donor; or use their services for repairs or maintenance on your home.
Generally, the donor will need to provide a written statement (gift letter) that says the money is a true gift and doesn't need to be repaid. They'll also need to provide their relationship to you, as well as proof of their ability to make the gift (such as bank account statements).
Once you've received the gifted funds, you'll need to deposit them into your own bank account and provide documentation of the deposit to your lender. The money should then be used towards your down payment and/or closing costs.
If you have any questions about whether you can use gifted funds for your VA loan, be sure to ask your lender.
VA Gift Requirements
If you're looking to use VA loan gift funds can be used to cover the cost of your home purchase, there are a few things you need to know. First, the donor (person giving you a gift) must be a close relative (spouse, child, parent, sibling, aunt, uncle, or in-law). Second, the gift cannot be conditional – meaning that the funds cannot be given with the expectation of repayment.
If you have any questions about using gifted funds for your VA loan purchase, be sure to ask your lender. They'll be able to provide you with all the information you need to make sure everything goes smoothly.
Who can gift money for a VA mortgage?
It is possible to receive a gift toward your home
purchase from almost anybody, but there is one key
stipulation: the gift cannot be from someone who has an
interest in the transaction.
An interested party is someone who has an interest in your transaction and is involved in it in some way, such as a builder or developer, another broker, a real estate agent, or even the seller himself. Although, sellers are permitted to provide a sales concession. You may also use gift money as part of your down payment if desired.
Friends and family members may “donate” money to the buyer in order for them to be able to afford the charges associated with the purchase. For a VA loan, however, there are specific conditions that must be met before a gift money may be used.
The only requirement is that the donor must not have any financial interest in the property you're buying. So, for example, a real estate agent or builder could not give you gift funds.
Is there a gift funds limit with VA home loans?
There is no limit to the amount that may be donated, regardless of whether the funds are coming from parents, grandparents, or an employer, so long as the donor satisfies the requirements of the VA loan program (as described above).
The amount of money that may be given to a veteran to cover the closing and prepaid expenses are not subject to any restrictions, other than the gift letter and related documentation.
On the other hand, there are repercussions for taxes that might come into play here. The yearly exclusion limit for gifts will increase to $16,000 per person beginning in 2022. This determines the maximum amount that a donor may give away without having to inform the Internal Revenue Service of the transaction.
If mom and dad are providing the gift funds, each donor is allowed to contribute $16,000 each.
How to Use Gift Funds When Applying for a VA Loan
If you're using gift funds to help with the purchase
of your home, there are a few things you need to know.
First, you'll need to have a letter from the person
gifting you the funds that says they are indeed a gift
and not a loan. The letter should also state the donor's
relationship to you.
Next, you'll need to make sure that the gift(s) meet the VA's requirements. Gift funds can only be used for certain purposes, including closing costs, down payment, and prepaid expenses.
Finally, keep in mind that you may still be required to provide some of your own funds even if you're using gift funds. The VA has strict guidelines in place to make sure that veterans are able to afford their homes, so don't rely solely on gifts when applying for a loan.
Does the VA Allow Gift Funds for Reserves
In most cases, the Veteran does not need cash reserves, however, the borrower must have 3 months of PITI documented for each property in order for the rental income to be considered if the borrower owns several properties.
Gift money are not permitted to be utilized to satisfy reserve requirements.
SOURCE: VA Pamphlet 26-7, Revised Chapter 4: Credit Underwriting
If Someone Gives Me Money, Why Do I Need a Gift Letter?
If you're using gift money from a family member or friend to buy a home, you might be wondering why you need a gift letter. After all, the money is coming from someone you know and trust, so why all the extra paperwork?
The answer has to do with mortgage loan underwriting standards. The lender may need to document that the gift funds are truly a gift and not a loan that needs to be repaid. The gift letter is one way they can do that.
The lender wants a complete picture of your financial condition when you apply for a mortgage loan.
Requirements for the Gift Letter
The good news is that the requirements for the gift letter are fairly straightforward. The letter should include:
- The name, address, and relationship of the donor
- The amount of gift money being given
- A statement that says the money is a gift and does not need to be repaid
- The date of the transaction
- Signature of both the donor and recipient
In some cases, lenders may also require proof of where the money came from, such as bank statements or canceled checks. If you have any questions about what your lender requires, just ask. They'll be happy to help you get everything in order, so you can move forward with your home purchase.
What Happens if the Donor Changes Their Mind?
If the donor changes their mind about gifting the funds after the loan has already been approved, the borrower may not close on the loan if the gift funds are needed to cover the closing and prepaid costs.
Conclusion
If you're getting a VA mortgage, you may be able to get help with your VA loan closing costs with gift money. But there are some requirements you'll need to meet in order to qualify. First, the person giving you the gift must be an eligible donor, like a parent or grandparent. Second, they'll need to provide a gift letter that shows they have the financial ability to give you the gift. And finally, the gift can't be used for any other purpose besides your closing expenses. If you can meet all these requirements, then getting help with your settlement costs with gift funds can be a great way to finance your home purchase.
SOURCE: Chapter 4 Credit Underwriting
Recommended Reading
- VA Home Loan Inspections: What You Should Know
- VA Closing Costs: Everything you need to know
- How to Get Your Certificate of Eligibility for a VA Loan